Download

WASHINGTON--(BUSINESS WIRE)--In an analysis of two new sources of information about family finances,
the Consumer Federation of America and Primerica found that two-thirds
of middle class Americans acknowledge having made financial mistakes,
often costly ones.

The new report, “The Financial Status and Decision-Making of the
American Middle Class,” also concluded that the financial condition of
most middle class families is challenging. For example, in 2010 the
typical middle class family had financial assets of $27,300 – including
retirement savings but not pensions – which was 28 percent less than the
$37,800 held in 2007.

The comprehensive analysis includes a national survey of 2015
representative adult Americans by ORC International in July of this year
and a statistical examination of the Federal Reserve Board’s 2010 Survey
of Consumer Finances, by Professor Catherine Montalto of The Ohio State
University.

In the ORC International survey, 843 out of 2015 respondents reported
household incomes between $30,000 and $100,000 and were considered to be
middle class. Key findings from an analysis of the survey data are:

Two-thirds of middle class Americans (67%) said that, in the past,
they had made at least one “really bad financial decision,” and nearly
half of those questioned (47%) acknowledged that they had made more
than one bad decision. The typical (median) cost of these bad
decisions was $5,000, but the average cost was $23,000.

Few of these Americans said their main source of information or advice
about specific financial decisions would be from the Internet, books,
magazines, or TV. And a number said they would not seek information or
advice in making these decisions. For example, for “saving and
investing,” only 15 percent said they would rely on the Internet,
publications, or TV for the information, yet another 17 percent said
they “wouldn’t seek any information or advice, and just make a
decision.” However, for this kind of decision, 45 percent said they
would use information and advice from a financial professional.

These middle class Americans are much more risk-averse than those with
higher incomes. If given $1,000,000 to invest for retirement, only 21
percent of middle class Americans, compared to 48 percent of
higher-income persons (incomes $100,000 and over), would invest mainly
in “stocks, bonds, and/or mutual funds.” And 19 percent of the middle
class group would “invest” most of their funds in a savings account
while 25 percent would invest mainly in real estate.

Yet, large majorities of these Americans believe their ability to make
financial decisions is “good” or “excellent” – for example, 81 percent
for ability to budget income and 80 percent for ability to manage
credit card debt though only 63 percent for ability to save for
retirement and 67 percent for their ability to purchase a mortgage
loan.

“Considering their past mistakes and the complexity of the financial
services marketplace, we were surprised at how highly most middle class
Americans rate their ability to make a variety of financial decisions
and how infrequently they rely on information from the Internet and
publications,” said CFA Executive Director Stephen Brobeck.

The second source of information was the Federal Reserve Board’s 2010
Survey of Consumer Finances, which was released several months ago.
Professor Catherine Montalto of The Ohio State University used its
database, and that of the Fed’s 2007 survey, to compute financial
statistics for the 40 percent of households in the third and fourth
income quintiles -- incomes between $35,600 and $94,600 in 2010.
Analysis of these data revealed that:

This typical middle class family had financial assets of $27,300,
including $3,900 in checking and/or savings accounts. These financial
assets were 28 percent less than the $37,800 held in 2007.

Most of these financial assets represented money in contributory
retirement accounts, but only about three-fifths of all families (61%)
had such an account (though a number of middle class families did have
pensions).

For middle class families, the typical debt payments to income ratio
was 20 percent with only 9 percent having debt payments that were
overdue by 60 days or more. But nearly half (49%) still carried credit
card debt from month to month, and the typical (median) debt for these
families was $2,700.

The decline in housing prices was the main reason that the net assets
of the typical middle income family declined 35 percent, from $145,600
to $94,700.

“Families without a lot of resources are balancing difficult and
expensive priorities such as saving enough for college and retirement or
paying off a mortgage and consumer debt. When you consider these demands
within the context of the last decade’s falling incomes, we are nearing
a crisis in this country,” said John Addison, Primerica Co-CEO.
“Primerica’s representatives specialize in working with families that
earn between $30-$100,000, and trust me, this can be a lonely field to
be in. The trend on Wall Street is to work with wealthier and wealthier
clients, but this report lays out very clearly the urgent need for more
financial services aimed at middle income earners.”

Other findings from the analysis of the Fed data include:

Only 21 percent of the middle class families had a cash value life
insurance policy, 15 percent stocks outside a retirement account, 14
percent certificates of deposit, and 13 percent U.S. Savings Bonds.

Over half of these families (53%) had installment debt whose typical
amount was $13,500. Almost all of this debt represented auto loans and
student loans.

These families held consumer and mortgage debt that was, typically,
$85,400 in 2007 and $84,400 in 2010.

Two-fifths of middle class persons (40%) said they would not seek
information or advice about managing credit card debt, and about
one-quarter would not do so for purchasing auto insurance (25%) and
life insurance (24%).

Few said they would use information and advice from a financial
professional for managing credit card debt (18%) and purchasing auto
insurance (13%).

The least well-educated middle class persons were the least likely to
seek information or advice. For example, 23 percent of those with a
high school degree or less, but only 10 percent of those with a
college degree, would not seek information about saving and investing.

A very small percentage would invest the bulk of $10,000 (7%),
$100,000 (6%), or $1,000,000 (6%) in gold or precious metals.

Fewer middle class persons (63%) than those with incomes of $100,000
or higher (76%) rated their decision-making about saving for
retirement as good or excellent.

More middle class persons (67%) than upper income persons (61%) said
they had made at least one bad financial decision but the latter group
lost more money -- $61,000 vs. $23,000 on average, presumably because
they had more to lose.

The Consumer Federation of America is a nonprofit association of some
270 consumer groups that was established in 1968 to advance the consumer
interest through research, advocacy, and education. While its primary
focus is public policy issues, CFA founded and manages the America Saves
campaign in which more than 300,000 Americans have enrolled or pledged
as Savers.

Primerica, Inc. headquartered in Duluth, GA, is a leading distributor of
financial products to middle-income families in North America. Primerica
representatives educate their Main Street clients about how to better
prepare for a more secure financial future by assessing their needs and
providing appropriate solutions through term life insurance, which we
underwrite, and mutual funds, annuities and other financial products,
which we distribute primarily on behalf of third parties. In addition,
Primerica provides an entrepreneurial full or part-time business
opportunity for individuals seeking to earn income by distributing the
company’s financial products. We insure more than 4.3 million lives and
approximately 2 million clients maintain investment accounts with us.
Primerica is a member of the Russell 2000 Stock index and is traded on
The New York Stock Exchange under the symbol “PRI”.